The Securities and Exchange is telling insurance companies that it is taking a hard look at disclosures insurers are making to customers contemplating purchase of deferred annuity riders, a new option when purchasing variable annuities.
Also coming under “heightened” scrutiny are funds and contract names that suggest safety or protection from loss.
The SEC views on these issues were made at a recent ALI-CLE meeting held in Washington by Norm Champ, SEC director of the Division of Investment Management.
“The staff has recently heightened its scrutiny of fund and contract names suggesting safety or protection from loss,” Champ said.
“We have concluded that the terms ‘protected’, ‘guaranteed’, and similar terms, when used without some additional qualification, may contribute to investor misunderstanding about the potential for loss associated with an investment,” Champ said.
He noted that the agency recently published a Guidance Update (2013 – 12) that explains these concerns.
As a result, in the disclosure review process, the staff recently requested that some funds and contracts change their names,” Champ said. “The staff took this action in response to an increase in the use of the term ‘protected’ in situations where that term was used without a qualification that would adequately describe the nature and limits of any protection offered,” Champ said.
Champ made his comments at an ALI CLE Conference on Life Insurance Company Products. His comments were posted on the SEC website.
“It is important that disclosure statements to customers regarding deferred annuity riders make clear to investors that the amounts transferred out of variable subaccounts to purchase these deferred income payments are no longer available to the contract owner, other than through the receipt of the deferred, fixed income payments,” Champ said.
Lee Covington, senior vice president and general counsel at the Insured Retirement Institute, says Champ’s comments are important.